Tuesday, 21 September 2010

Scarcity and Online Buying: Digital Behavioural Economics

The current advertising & media industry push towards a greater understanding of Behavioural Economics isn't a new thing. From Walter Dill Scott's succinctly named "The Psychology of Advertising: A Simple Exposition on the Principles of Psychology In Their Relation to Successful Advertising" in 1908 and John Watson's transition from academic to VP of JWT in the 1920's through to the en vogue works of Gladwell, Thaler & Miller today, psychology has been applied in a myriad of formats and combinations (who stole my neuromarketing & replaced it with behavioural economics!?)

That being said, looking within marketing and advertising, we can find manifestations of psychological principles in intentional and unintentional situations. While case studies are present in both online and offline mediums, examples within the digital space lend themselves to special analysis, due to the unique nature of consumer interaction online. Throughout this series of posts, I plan on taking a principle and highlighting a clear example of how a marketer has made it work well.

Scarcity and Online Buying

The power of scarcity (and/or perceived scarcity) has been heavily written about in various academic and non-academic circles through the marketing and economics fields. Given that the more academic implications of scarcity have been covered thoroughly, I'm going to focus more on the way it applies to online e-commerce.

So what is scarcity? Economics defines it loosely as "The condition in which our wants are greater than the resources available to satisfy those wants" (Arthur, 2008). However, given that arguably every purchasable good available is in someway scarce, the power of scarcity has a greater psychological power than the economic definition gives it. One psychological implication of scarcity is that it "binds rationality" (Altman, 2006), meaning that it takes an otherwise rational decision and effects the decision or purchase process. To understand the full implications of this, we need to understand how it fits into the purchase model.

The Consumer Purchase Process provides a good model to think about where different concepts effect the consumer and how we go about buying

As with many applied concepts, scarcity speaks directly to the base instincts of the consumer. The act of purchase at its most basic involves the minimization of risk and the amplification of perceived value. Everyone wants to feel like they made the best decision to get the best deal. As value is a rather unclear concept to individuals, we draw upon previous experiences (formed during previous post purchase experiences) as well as our current evaluation of alternatives presented to us. Scarcity speaks more to the way we evaluate alternatives, as it imparts a greater perceived value to alternatives deemed scarce. As the consumer search for information doesn't always produce a 'perfect' level of information about alternatives available (due to limitations or marketing communications), scarcity can be real (as in there are actually very few goods available) or perceived (as in the market is being manipulated and/or a sense of urgency is given through messaging).

Scarcity Working Well Online - Woot!

 Woot's main page features a clear message about the product on offer for the day and provides a clear path to purchase

Classic examples of creating scarcity exist in concepts such as the '1 week'/'Limited Time' sale, but also in the relatively new trend of 'Deal a Day' sites. Sites such as Woot! or larger retailers such as Amazon.com and Buy.com offer a product a day, ceasing sale of the product 24 hours after launch or when stock has sold out. By offering a desired product at a lower price, the draw to the site is already an established value. Given the threat of a sell-out, perceived scarcity becomes a heavy motivator in a quick purchase.Woot's selection of products already being considered by their target market (i.e. MP3 players, computers, etc.) means that scarcity can help along a purchase already being mulled over by the consumer.

As seen with Woot.com, scarcity as a motivator works best when a clear message exists about the urgency surrounding the product and the path to purchase is clear. With Woot! a few clicks and a login allow you to quickly and easily purchase the daily product on offer. Woot also leverages the interest created by its scarcity model into user involvement, with users supplying comments and support for the product.

Importantly, Woot! also provides metrics about how sales are going, allowing users to feel as if they have a handle on understanding how scarce the product is. In reality, the information provides no real indicator on how long supplies will last, but easy to understand metrics help to fulfill the consumer's 'search for information'.

 Woot's flashing lights on site (shown here as a real product) indicate low stock or a special event called a 'Woot Off'.

After building up a constant daily level of scarcity around its products, Woot! sporadically increases urgency through a series of cues and events. Flashing lights feature around the product as its stock is low, driving home scarcity and increasing urgency to purchase further. The Woot! flashing lights also feature on their random 'Woot Off' events, in which previously unsold stock is resold consecutively, with multiple items being featured, one after another until all are sold. Such events don't effect the scarcity of the item's original day on the site, as a sell out would prevent it from being featured in the next 'Woot-off.'

By combining a desired item, with an interested target market & a sense of urgency, Woot! creates an opportunity for purchase that might not have occurred. Looking back on the consumer purchase process, the website stimulates 'problem recognition', helps in the 'information search', negates an 'evaluation of alternatives' through perceived scarcity and drives a clear path to purchase.

Scarcity Backfires -SecretSales.com & the iPad

While Woot! manages to leverage scarcity in a way that provides a relationship with the consumer, other sites illustrate what can occur when the power of the concept is utilized incorrectly. Secretsales.com's iPad promotion, illustrates what can occur when scarcity isn't handled in a clear way for the consumer. 

Secretsales, a members only sales site, created a wave of interest on Twitter and Facebook by offering a 3 day sale of iPads at 50% their normal price. By spreading the sale's stock over three days, Secretsales hoped to graft an increased perception of scarcity on top of an already rare offering, a cheaper iPad. In doing so, they encountered site crashes on the run up to the sale, leaving many unable to even attempt to buy. Those that could get through quickly exhausted the relatively small stock, leaving a stock out message for consumers who later connected. Due to an outpouring of network abuse, Secretsales then decided to release all remaining stock, quickly clearing out and ending the promotion early. What followed was continued online abuse, with many claiming the entire sale was a scam. 

While scarcity quickly drove sales in the Secretsales promotion, the campaign itself could be considered a failure. If they planned on utilizing scarcity to drive sales this would be considered a success, but given the already rare nature of the product, such a promotion left many consumers wary of the brand and reticent to engage with them again. While Woot! and others utilize metrics and visual cues to empower consumers to understand and act on a perceived scarcity, the unclear situation put forth by Secretsales left them powerless and angry. Given the sites' objectives, raising awareness, driving registrations and encouraging repeat visits, a different promotional mechanism would have proven more effective.

Scarcity is a powerful concept to drive sales within online shopping, but it needs to be inline with marketing objectives. Post purchase behaviour can shape future interactions with online shopping portals, so scarcity must be tempered with providing an empowered experience for the consumer. By providing a clear path for purchase, informing the consumer about both the product and the buying situation and considering consumer perception once 'rationality' returns, scarcity can be applied efficiently, but not at the cost of the consumer relationship.